Wednesday, September 28, 2011

The next lost decade?

Possible chain of events: More pain ahead for Greece, culminating in a big write down for its creditors. ECB solvency challenges. Sovereign debt crises for Italy and Spain. Global recession followed by debt deflation. A lost decade worse than what Japan experienced in the 1990s.

5 comments:

Why do you consider Satyajit Das to be spouting nonsense? I don’t think it will be as bad as Mr. Das outlines but it will be bad. And I don’t see how Greece can restructure their so called economy in such a way so they can become functioning without Germany’s and France’s constant bailouts. And aside from Germany’s largesse today I think this is the end of German rescues.

Europe's demographics at the very least won’t allow for more bailouts. This applies to several other countries as well--PIIS’s makes for a good acronym. The world will not end-economically speaking-but it is in for a very rough and long ride. And in the US a 10% unemployment rate (it’s really much higher than that) will be the norm for a very long time. Five more years at least.

I don’t think the US can default on its debt as that would thoroughly destroy the remains of the US and the global economy. China, Japan, the US and the other debt holders simply won’t allow that to happen. Too big to fail so to speak. But globally we are in the proverbial uncharted waters fueled by 20 years of a free money giveaway in every direction. Certainly the US directly or indirectly manufactured items the world wanted to buy (real wealth creation) and did indeed do so--but mainly with borrowed dollars both privately and federally. They even financed two major wars with borrowed dollars.

As I said this is ugly and most certainly will get uglier. It’s been obvious to anyone who has paid the slightest attention that there is a great global economic leveling occurring. The only remaining question is- will it be global financial armageddon or “just” a very long while of economic contraction and all the pain that goes along with that? My bet is on the latter with fingers crossed. But I have also invested in a good quality rope-- just in case.

The contrarian socialist in me wants to believe that there is no "great leveling" at all, just a mass(ive) medial assault to instigate fear-based behavior, which will only benefit a select few that remain cool-headed. Unfortunately, I believe these select few are mainly among the U.S. financial elite, whose scare tactics are now used to convince the rest of the world that drastic rescues and interverntions are needed to avoid the "collapse". Vague portrayals of doom abound, but I found few (if any) careful analyses of what exactly would happen, to whom and in which order, if the current reckless law-making and debt funding efforts were not undertaken. We are being pressured into believing that there is only one way forward, a belief which is generally seldom true. There is so much noise about debt, but the creditors remain curiously absent from the entire debate... aren't they supposed to also bear risk of wrong credit decisions in a normal world?